AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1997
REGISTRATION NO. 333-2672
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HOME PROPERTIES OF NEW YORK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MARYLAND 16-1455126
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
850 CLINTON SQUARE
ROCHESTER, NEW YORK 14604
(716) 546-4900
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANN M. MCCORMICK, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
HOME PROPERTIES OF NEW YORK, INC.
850 CLINTON SQUARE
ROCHESTER, NEW YORK 14604
(716) 246-4105
(NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
Deborah McLean Quinn, Esq.
Nixon, Hargrave, Devans & Doyle LLP
900 Clinton Square
Rochester, New York 14604
(716) 263-1307
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box.[x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier registration statement for the same offering. [ ]___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
2,630,000 SHARES
HOME PROPERTIES OF NEW YORK, INC.
COMMON STOCK
($.01 par value)
All of the shares of the common stock, par value $.01 per share (the
"Common Stock") of Home Properties of New York, Inc. ("Home Properties" or the
"Company") offered hereby are being offered by the Selling Shareholders of Home
Properties. See "Selling Shareholders." The Company will not receive any
proceeds from the sale of the shares offered hereby. The Common Stock is
listed on the New York Stock Exchange under the symbol "HME". On February
7, 1997 , the closing price of the Common Stock on the New York Stock
Exchange was $23 3/4 per share.
Home Properties is a self-administered, self-managed, fully integrated
real estate investment trust. Home
Properties conducts substantially all of its business and owns all of its
properties through Home Properties of New York, L.P. (the "Operating
Partnership"). To comply with certain technical requirements of the Internal
Revenue Code of 1986, as amended (the "Code") applicable to real estate
investment trusts ("REITs"), the Operating Partnership carries out portions of
its property management and development activities through management companies
beneficially owned by the Operating Partnership but controlled by one or more
officers of Home Properties (collectively, the "Management Companies").
The shares offered hereby may be offered and sold from time to time as
market conditions permit on the New York Stock Exchange, or otherwise, at
prices and terms then prevailing, at prices related to the then-current market
price, or in negotiated transactions. The shares may be sold by one or more of
the following methods, without limitation: (a) a block trade in which a broker
or dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate a transaction; (b)
purchases by a broker or a dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face-to-face transactions between sellers and purchasers without a broker or
dealer. In effecting sales, brokers or dealers engaged by one or more of the
Selling Shareholders may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts from Selling
Shareholders in amounts to be negotiated. Such brokers and dealers and any
other participating brokers or dealers may be deemed "underwriters" under the
Securities Act of 1933, as amended (the "Securities Act").
SEE "RISK FACTORS" (beginning on page 4) FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The date of this Prospectus is February 10, 1997
<PAGE>
ADDITIONAL INFORMATION
Home Properties has filed with the Securities and Exchange Commission
(the "Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations promulgated thereunder,
with respect to the common stock offered pursuant to this Prospectus. This
Prospectus, which is part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and such exhibits,
copies of which may be examined without charge at, or obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will
also be available for inspection and copying at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Home Properties is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and proxy statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at the locations described above. Copies of such
materials can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding Home Properties at
http://www.sec.gov. In addition, the Common Stock is listed on the New York
Stock Exchange and similar information concerning Home Properties can be
inspected at the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
Home Properties furnishes its stockholders with annual reports containing
audited financial statements with a report thereon by its independent public
accountants.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed by Home Properties under
the Exchange Act with the Commission, are incorporated in this Prospectus by
reference (all File No. 1-13136) : the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, as amended by Form 10-K/A
Amendment No. 1 and Amendment No. 2 ; the Company's Quarterly
Report on Form 10-Q for the quarterly period ending March 31, 1996, as
amended by Form 10-Q/A Amendment No. 1; the Company's Quarterly Report on Form
10-Q for the quarterly period ending June 30, 1996, as amended by Form 10-Q/A
Amendment No. 1; the Company's Quarterly Report on Form 10-Q for the quarterly
period ending September 30, 1996, as amended by Form 10-Q/A Amendment No. 1;
the Company's Current Report on Form 8-K dated May 16, 1995, as amended by Form
8-K/A Amendment No. 1, Amendment No. 2 and Amendment No. 3; the Company's
Current Report on Form 8-K dated January 1, 1996, as amended by Form 8-K/A
Amendment No. 1, Amendment No. 2 and Amendment No. 3; the Company's Current
Report on Form 8-K dated January 5, 1996, as amended by Form 8-K/A Amendment
No. 1; the Company's Current Report on Form 8-K dated August 6, 1996; the
Company's Current Report on Form 8-K dated December 23, 1996; and all
other reports filed by the Company pursuant to Section 13(a) or 15(d) of the
Exchange Act since December 31, 1995.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by references in and to be
a part of this Prospectus from the date of filing of such reports and
documents (provided, however, that the information referred to in Instruction 8
to Item 402(a)(3) of Regulation S-K promulgated by the Securities and Exchange
Commission is not incorporated herein by reference).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
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<PAGE>
herein or in the Registration Statement containing this Prospectus or in any
other subsequently filed documents which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to those documents. Requests should be directed to:
David P. Gardner, Chief Financial Officer, Home Properties of New York, Inc.,
850 Clinton Square, Rochester, New York 14604 (716) 546-4900.
THE COMPANY
AS USED IN THIS SECTION, THE TERMS "HOME PROPERTIES" AND "COMPANY",
INCLUDES HOME PROPERTIES OF NEW YORK, INC., A MARYLAND CORPORATION, HOME
PROPERTIES OF NEW YORK, L.P., A NEW YORK LIMITED PARTNERSHIP, AND THE
MANAGEMENT COMPANIES.
Home Properties of New York, Inc. is a self-administered, self-managed,
fully integrated real estate investment trust formed in November, 1993 to
continue and expand the multifamily residential real estate business of Home
Leasing Corporation, which was organized in 1967. The Company is one of the
largest owners and operators of multifamily residential properties in Upstate
New York (based on the number of apartment units) and the only publicly traded
real estate investment trust headquartered in the area. It recently combined
its operations with those of Conifer Realty, Inc. and its affiliates
("Conifer"), another large owner and operator of multifamily properties
throughout New York State.
Home Properties conducts substantially all of its business and owns all
of its properties through Home Properties of New York, L.P. (the "Operating
Partnership"). To comply with certain technical requirements of the Internal
Revenue Code of 1986, as amended (the "Code") applicable to real estate
investment trusts ("REITs"), the Operating Partnership carries out portions of
its property management and development activities through management companies
beneficially owned by the Operating Partnership but controlled by one or more
officers of Home Properties (collectively, the "Management Companies").
Home Properties currently owns and manages 29 communities with
7,544 apartment units and one community containing 202 manufactured home
sites. The Company also holds general partner interests in an additional
3,914 apartment units and manages 1,630 apartment units and
approximately 1.6 million square feet of commercial space for other owners
(primarily affiliates). The 13,088 total apartment units now owned
and/or managed by Home Properties are primarily located throughout New York
State. The Company is fully integrated with operations that include
multifamily acquisitions, development, redevelopment, management, marketing,
finance, leasing and asset management.
The Company's executive offices are located at 850 Clinton Square,
Rochester, New York 14604. Its telephone number is (716) 546-4900.
RISK FACTORS
An investment in the Shares involves various risks. In addition to
general investment risks and those factors set forth elsewhere in this
Prospectus, prospective investors should consider, among other things, the
following factors:
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DEPENDENCE ON UPSTATE NEW YORK REGION
A significant number of the properties owned and managed by the Company
(the "Properties") are located in the Upstate New York Region. At December
31 , 1996, 5,604 of the Company's owned multifamily units (approximately
75%) were located in the Upstate New York Region. Accordingly, the
Company's performance is partially linked to economic conditions and the
demand for apartments in the Upstate New York Region. A decline in the economy
in this region generally may result in a decline in the demand for apartments
which may adversely affect the ability of the Company to make distributions to
stockholders.
DEBT FINANCING; NO LIMITATION ON DEBT
The Company is subject to the customary risks associated with debt
financing including the potential inability to refinance existing mortgage
indebtedness upon maturity on favorable terms. If a property is mortgaged to
secure payment of indebtedness and the Company is unable to make mortgage
payments, the property could be foreclosed upon with a consequent loss of cash
flow and asset value to the Company. In addition, the Company funds
acquisitions and development activities partially through short-term
borrowings. It expects to refinance any properties purchased with short-term
debt either with long-term debt or equity financing depending upon economic
conditions at the time of refinancing. The Board of Directors has adopted a
policy of limiting the Company's indebtedness to approximately 50% of its
market capitalization (i.e., the market value of issued and outstanding shares
of Common Stock and Units plus total debt), but the organizational documents of
the Company do not contain any limitation on the amount or percentage of
indebtedness, funded or otherwise, the Company may incur. Accordingly, the
Board of Directors could alter or eliminate its current policy on borrowing.
If this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Company's ability to make expected distributions to its stockholders and an
increased risk of default on the Company's indebtedness. At December
31 , 1996, the ratio of the Company's indebtedness to its market
capitalization was 34.2% .
The Company has established its debt policy relative to the market
capitalization of the Company rather than to the book value of its assets, a
ratio that is frequently employed. The Company has used its market
capitalization because it believes that the book value of its assets (which to
a large extent is the depreciated value of real property, the Company's primary
tangible asset) does not accurately reflect its ability to borrow and to meet
debt service requirements. The market capitalization of the Company, however,
is more variable than book value and may not necessarily reflect the fair
market value of the underlying assets of the Company at all times. Although
the Company will consider factors other than market capitalization in making
decisions regarding the incurrence of indebtedness (such as the estimated
market value of such assets upon refinancing and the ability of particular
properties and the Company as a whole to generate cash flow to cover expected
debt service), there can be no assurance that the amount of debt service will
not impair the Company's ability to make distributions to its stockholders.
FAILURE TO QUALIFY AS A REIT
Although the Company believes that it is organized and operated to
qualify as a real estate investment trust (a "REIT") under the Internal Revenue
Code of 1986, as amended (the "Code"), no assurance can be given that the
Company will remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations. The complexity of
these provisions and applicable Treasury Regulations is also increased in the
context of a REIT that holds its assets in partnership form. The determination
of various factual matters and circumstances not entirely within the Company's
control may affect its ability to qualify as a REIT. In addition, no
assurance can be given that legislation, new regulations, administrative
interpretations, or court decisions will not significantly change the tax laws
with respect to the qualification as a REIT or the Federal income tax
consequences of such qualification; however, the Company is not aware of any
proposal in Congress to amend the tax laws that would materially and adversely
affect the Company's ability to operate as a REIT.
If in any taxable year the Company fails to qualify as a REIT, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to Federal income
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tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. As a result, the amount available for distribution to
the Company's shareholders would be reduced for the year or years involved. In
addition, unless entitled to relief under certain statutory provisions, the
Company would also be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost.
DEPENDENCE OF THE COMPANY ON THE OPERATING PARTNERSHIP TO MAKE DISTRIBUTIONS
The Company's sole material asset is its interest in the Operating
Partnership, and the Company's dividend policy is based on the Operating
Partnership's distribution policy. Even if the Operating Partnership makes
sufficient distributions to enable the Company to satisfy the REIT distribution
requirements described above, other priorities for utilization of cash could
reduce additional distributions by the Operating Partnership to partners and,
accordingly, the funds available to the Company to pay dividends. In addition,
the Operating Partnership is likely to borrow funds to enable it to follow its
distribution policy. Borrowings to finance distributions will result in an
increase in interest expense for the Operating Partnership and a corresponding
reduction in the amount that the Operating Partnership would otherwise
distribute to its partners.
EFFECT OF DISTRIBUTION REQUIREMENTS
To maintain its qualification as a REIT, Home Properties must distribute
to its stockholders annually at least 95% of REIT taxable income. Under
certain circumstances, Home Properties may not have sufficient cash or other
liquid assets to meet this distribution requirement. This could arise because
of timing differences between income recognition and cash receipts and
disbursements (income may have to be reported before cash is received, or
expenses may have to be paid before a deduction is allowed), and Home
Properties could have taxable income without sufficient cash to meet the REIT
distribution requirements. The Company also may face competing demands for its
cash, such as expenditures for future acquisitions or for improvements or
repairs to the Properties. In these situations, the funds necessary to meet
the distribution requirements or the other expenditures would have to be
obtained, to the extent available, primarily from cash flow, net proceeds from
the issuance of equity securities, the sale of existing properties,
institutional borrowings and the issuance of debt securities. In such
instances, the Company might need to borrow funds in order to avoid adverse tax
consequences even if management believed that the then prevailing interest
rates, terms and other market conditions were not generally favorable for such
borrowings or that such borrowings would not be advisable in the absence of
such tax considerations. No assurance can be given that necessary funds will
be available to allow Home Properties to meet the REIT requirements or the
Company's other obligations.
REAL ESTATE INVESTMENT CONSIDERATIONS
OCCUPANCY AND ABILITY OF RESIDENTS TO PAY RENT. The Company is dependent
on rental income to pay operating expenses and to generate cash to enable Home
Properties to make distributions to its stockholders. If the Company is unable
to attract and retain residents or if its residents are unable, through an
adverse change in the economic condition of the region or otherwise, to pay
their rental obligations, Home Properties' ability to make expected
distributions will be adversely affected.
ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively
illiquid and, therefore, the Company has limited ability to vary its portfolio
quickly in response to changes in economic or other conditions. In addition,
the prohibition in the Code on REITs holding property for sale and related
regulations may affect the Company's ability to sell properties without
adversely affecting distributions to Home Properties' stockholders.
COMPLIANCE WITH LAWS AND REGULATIONS. Many laws and governmental
regulations are applicable to the Properties and changes in these laws and
regulations, or their interpretation by agencies and the courts, occur
frequently. Under the Americans with Disabilities Act of 1990 (the "ADA"), all
places of public accommodation are required to meet certain federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requires removal of
structural barriers to handicapped access in certain public areas of the
Properties, where such removal is "readily achievable." The ADA does not,
however,
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consider residential properties, such as apartment communities, to be public
accommodations or commercial facilities, except to the extent portions of such
facilities, such as a leasing office, are open to the public. A number of
additional federal, state and local laws exist which also may require
modifications to the Properties, or restrict certain further renovations
thereof, with respect to access thereto by disabled persons. For example, the
Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment communities
first occupied after March 13, 1990 to be accessible to the handicapped. Non-
compliance with the ADA or the FHAA could result in the imposition of fines or
an award of damages to private litigants. Although management believes that
the Properties are substantially in compliance with present requirements, the
Company may incur additional costs in complying with the ADA for both existing
properties and properties acquired in the future. The Company believes that
the Properties that are subject to the FHAA are in compliance with such laws.
Under the federal Fair Housing Act and state fair housing laws,
discrimination on the basis of certain protected classes is prohibited. The
Company has a policy against any kind of discriminatory behavior and trains its
employees to avoid discrimination or the appearance of discrimination. There is
no assurance, however, that an employee will not violate the Company's policy
against discrimination and violate the fair housing laws. Such a violation
could subject the Company to legal action and the possible awards of damages.
Under various laws and regulations relating to the protection of the
environment, an owner of real estate may be held liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or
in the property. These laws often impose liability without regard to whether
the owner was responsible for, or even knew of, the presence of such
substances. The presence of such substances may adversely affect the owner's
ability to rent or sell the property or use the property as collateral.
Independent environmental consultants conducted "Phase I" environmental audits
(which involve visual inspection but not soil or groundwater analysis) of
substantially all of the Properties owned by the Company prior to their
acquisition by the Company. The Phase I audit reports did not reveal any
significant issues of environmental concern, nor is the Company aware of any
environmental liability that management believes would have a material adverse
effect on the Company. One issue raised by the Phase I audit reports was the
existence in certain of the Properties of asbestos that does not require
remediation under current conditions. There is no assurance that Phase I
reports would reveal all environmental liabilities or that environmental
conditions not known to the Company may exist now or in the future on existing
properties or those subsequently acquired which would result in liability to
the Company for remediation or fines, either under existing laws and
regulations or future changes to such requirements.
If compliance with the various laws and regulations, now existing or
hereafter adopted, exceeds the Company's budgets for such items, Home
Properties' ability to make expected distributions could be adversely affected.
COMPETITION IN THE COMPANY'S MARKETS. The Company plans to continue to
acquire additional multifamily residential properties in New York State and may
expand its activities into nearby states. There are a number of multifamily
developers and other real estate companies that compete with the Company in
seeking properties for acquisition, prospective residents and land for
development. Most of the Company's Properties are in developed areas where
there are other properties of the same type. Competition from other properties
may affect the Company's ability to attract and retain residents, to increase
rental rates and to minimize expenses of operation. Virtually all of the
leases for the Properties are short-term leases (i.e., one year or less).
HAP CONTRACTS. As of the date of this Prospectus, approximately
9% of the apartment units owned by the Company are entitled to the benefits
of Housing Assistance Payments contracts ("HAP Contracts") with the U.S.
Department of Housing and Urban Development. The future of the HAP Contract
program is uncertain. If the HAP Contracts are not renewed by HUD or if the
HAP Contract program is terminated, there could be an adverse effect on cash
flow of the Properties affected. If any of the above occurred, Home
Properties' ability to make expected distributions to stockholders could be
adversely affected.
UNINSURED LOSSES. Certain extraordinary losses may not be covered by the
Company's comprehensive liability, fire, extended and rental loss insurance.
If an uninsured loss occurred, the Company could lose its
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investment in and cash flow from the affected Property (but would be required
to repay any indebtedness secured by that Property and related taxes and other
charges).
CAPITAL IMPROVEMENTS. The properties owned by the Company and which it
may acquire vary widely in age and require capital improvements regularly. If
the cost of improvements, whether required to attract and retain residents or
to comply with governmental requirements, substantially exceed management's
expectations, cash available for distribution to stockholders would be reduced.
The actual expenditures on capital improvements by the Company has varied from
property to property as the Company has repositioned newly acquired properties.
These expenditures were within the expectations of management and taken into
account in the price paid for the units.
RISKS OF AFFILIATED PROPERTY MANAGEMENT BUSINESS. Almost all of the
properties managed by the Company pursuant to management contracts are owned by
affiliates of Home Leasing and Conifer. Although the management contracts are
generally for one to five years in most cases, these contracts may be
terminated by the owners at any time in the event the property is sold or on 30
to 60 days' notice. Since these managed properties are generally owned by
limited partnerships of which Home Leasing or Conifer is the general partner
and in which various members of management and their affiliates have
significant ownership interests, conflicts could arise in enforcement of the
management contracts. Such conflicts could arise with respect to liabilities
incurred by the Company as property manager which the owners are required to
pay or indemnify the Company against and which such owners are unable or
unwilling to pay. Conflicts of interest may also arise in connection with the
property owners' decisions to sell the properties or renegotiate the management
contracts. Any of these events could adversely affect the Company's ability to
make distributions to stockholders.
RISKS OF REAL ESTATE DEVELOPMENT AND GOVERNMENT ASSISTED MULTIFAMILY
HOUSING DEVELOPMENT ACTIVITIES. While the Company's primary focus is currently
on the acquisition of multifamily residential properties, it is also a part of
the Company's operating strategy to seek attractive opportunities for
development, primarily of government assisted properties. All of the Company's
development activities at December 31 , 1996 related to government-
assisted multifamily residential properties. The real estate development
business involves significant risks in addition to those involved in the
ownership and operation of established properties, including the risks that
construction and long-term financing may not be available on favorable terms
and that construction may not be completed on schedule or on budget resulting
in increased debt service expense and construction costs. A primary source of
support for government assisted multifamily housing is the federal "Low Income
Housing Tax Credit" program (the "Tax Credit Program"). The Tax Credit Program
was included in the Tax Reform Act of 1986 and was extended several times. The
Tax Credit Program may be subjected to a sunset provision effective in 1997.
Even if this occurs, management believes that Congress is likely to extend the
Program on an annual basis since it is the only large scale rental housing
program currently available to encourage the construction and operation of
rental housing for low and moderate income households. In addition, management
believes that there will continue to be a need for subsidized housing and that
various forms of government subsidy programs will be available, although their
format may change. From time to time, the Company plans to make advances in
connection with development projects.
LIMITS ON OWNERSHIP AND CHANGE OF CONTROL
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding stock of Home Properties may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the last half of its taxable year. Home
Properties has limited ownership of the issued and outstanding Shares by any
single stockholder to 8.0% of the outstanding Shares. Norman and Nelson
Leenhouts will be permitted to acquire additional Shares, except to the extent
that such acquisition results in 50% or more in value of the outstanding Common
Stock of the Company being owned, directly or indirectly, by five or fewer
individuals. Although the Board of Directors presently has no intention of
doing so, the Board of Directors could waive these restrictions if it were
satisfied, based upon the advice of tax counsel or otherwise, that such action
would be in the best interests of Home Properties. Shares acquired or
transferred in breach of the limitation may be redeemed by Home Properties for
the lesser of the price paid or the average closing price for the ten trading
days immediately preceding redemption or may be sold at the direction of the
Company. A transfer of Shares to a person who, as a result of the transfer,
violates the ownership limit will be void and the Shares will
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automatically be converted into shares of Excess Stock. See "Description of
Capital Stock -- Restrictions on Transfer" for additional information regarding
the ownership limits.
The Articles of Incorporation authorize the Board of Directors to issue
up to a total of thirty million Shares and ten million shares of preferred
stock and to establish the rights and preferences of any shares issued. No
shares of preferred stock are currently issued or outstanding. Further, under
the Articles of Incorporation, the stockholders do not have cumulative voting
rights.
The percentage ownership limit, the issuance of preferred stock in the
future and the absence of cumulative voting rights could have the effect of
(i) delaying or preventing a change of control of Home Properties even if a
change in control were in stockholders' interest; (ii) deterring tender offers
for the Shares that may be beneficial to the stockholders; or (iii) limiting
the opportunity for stockholders to receive a premium for their Shares that
might otherwise exist if an investor attempted to assemble a block of Shares in
excess of the percentage ownership limit or otherwise to effect a change of
control of Home Properties.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly Norman Leenhouts, Nelson Leenhouts and Richard Crossed, for
strategic business direction and their experience in the real estate market.
The loss of their services could have an adverse effect on the operations of
the Company. The Company does not have, and is not currently contemplating
obtaining, key man life insurance for its executive officers.
CONFLICTS OF INTEREST WITH RESPECT TO PROPERTY MANAGEMENT
Unlike persons acquiring Common Stock, the Company's executive officers
own most of their interest in the Company through Units of limited partnership
interest in the Operating Partnership. As a result of their status as holders
of Units, the executive officers and other limited partners may have interests
that conflict with stockholders with respect to business decisions affecting
the Company and the Operating Partnership. In particular, certain executive
officers may suffer different or more adverse tax consequence than the Company
upon the sale or refinancing of some of the Properties as a result of
unrealized gain attributable to certain Properties. Thus, executive officers
and the stockholders may have different objectives regarding the appropriate
pricing and timing of any sale or refinancing of Properties. In addition,
executive officers of the Company, as limited partners of the Operating
Partnership, have the right to approve certain fundamental transactions such as
the sale of all or substantially all of the assets of the Operating
Partnership, merger or consolidation or dissolution of the Operating
Partnership and certain amendments to the Operating Partnership Agreement.
The Company manages multifamily residential properties through the
Operating Partnership and commercial and development properties and certain
multifamily residential properties through the Management Companies. As a
result, the Leenhoutses and other officers of and directors of the Company will
devote a significant portion of their business time and efforts to the
management of properties not owned by the Company.
Some officers of the Company have a significant interest in certain of
the managed properties as the only stockholders of Home Leasing or Conifer, the
general partners of the partnerships that own such managed properties and as
holders of other ownership interests. Accordingly, such officers will have
conflicts of interest between their fiduciary obligations to the partnerships
that own such managed properties and their fiduciary obligations as officers
and directors of the Company, particularly with respect to the enforcement of
the management contracts and timing of the sale of the managed properties.
In order to comply with technical requirements of the federal income tax
laws pertaining to the qualification of REITs, the Operating Partnership owns
all of the outstanding non-voting common stock (990 shares) of one of the
Management Companies, Home Properties Management, Inc., and Norman and Nelson
Leenhouts own all of the outstanding voting common stock (10 shares). The
Operating Partnership also owns all of the outstanding non-voting common stock
(891 shares) of another of the Management Companies, Conifer Realty
Corporation, and Norman and Nelson Leenhouts and Richard Crossed own all of
the outstanding voting common stock (9 shares). As a result, although the
Company will receive substantially all of the economic benefits of the business
carried on
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by the Management Companies through the Company's right to receive dividends,
the Company will not be able to elect directors and officers of the Management
Companies and, therefore, the Company's ability to cause dividends to be
declared or paid or influence the day-to-day operations of the Management
Companies will be limited. Furthermore, although the Company will receive a
management fee for managing the managed properties, this fee has not been
negotiated at arm's length and may not represent a fair price for the services
rendered.
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of shares of Common Stock in the public
market or the perception that such sales might occur could adversely affect the
market price of the Common Stock. The Operating Partnership has issued an
aggregate of 1,203,019 Units through December 31 , 1996 to persons other
than the Company which may be exchanged on a one-for-one basis for shares of
Common Stock under certain circumstances. The Operating Partnership has
also issued a Class A Interest which is presently convertible into 1,666,667
shares of Common Stock (which number will be adjusted under certain
circumstances to prevent such interest from being diluted). In addition, as of
December 31 , 1996, Home Properties has granted options to purchase an
aggregate of 697,778 shares of Common Stock to certain directors,
officers and employees of the Company.
All of the Shares issuable upon the exercise of options will be
"restricted securities" within the meaning of Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be transferred
unless they are registered under the Securities Act or are otherwise
transferrable under Rule 144. The Company expects to file a registration
statement with respect to such shares of Common Stock, thereby allowing shares
issuable under the Company's Stock Benefit Plans to be transferred or resold
without restriction under the Securities Act, unless held by directors,
executive officers or other affiliates of Home Properties.
In addition to the limits placed on the sale of "restricted securities"
by operation of Rule 144 and other provisions of the Securities Act, Norman
and Nelson Leenhouts have agreed not to dispose of their shares for a five-year
period ending on August 4, 1999, and the other directors and executive officers
of the Company have agreed not to dispose of any of their Shares for differing
periods in each case, subject to certain exceptions which include the ability
to pledge their securities as collateral for loans provided the pledgee is
subject to the same restrictions on disposition.
USE OF PROCEEDS
The Company will not receive any cash proceeds as a result of this
offering. The Company will, however, acquire additional partnership units in
the Operating Partnership in exchange for the shares of Common Stock issued to
the Selling Shareholders which are being sold hereunder. See "Selling
Shareholders" below.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of Home Properties consists of 30 million
shares of Common Stock, par value $.01 per share ("Common Stock"), 10 million
shares of excess stock ("Excess Stock"), par value $.01 per share, and
10 million shares of preferred stock ("Preferred Stock"), par value $.01 per
share. The following summary description of the Common Stock sets forth
certain general terms and conditions of the capital stock of Home Properties.
The descriptions below do not purport to be complete and are qualified entirely
by reference to Home Properties' Articles of Amendment and Restatement of
Articles of Incorporation, as amended ("Articles of Incorporation").
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COMMON STOCK
All shares of Common Stock offered will be duly authorized, fully paid,
and nonassessable. Holders of the Common Stock will have no conversion,
redemption, sinking fund or preemptive rights; however, shares of Common Stock
will automatically convert into shares of Excess Stock as described below.
Under the Maryland General Corporation Law ("MGCL"), stockholders are generally
not liable for Home Properties' debts or obligations, and the holders of shares
will not be liable for further calls or assessments by Home Properties.
Subject to the provisions of Home Properties' Articles of Incorporation
regarding Excess Stock described below, all shares of Common Stock have equal
dividend, distribution, liquidation and other rights and will have no
preference or exchange rights.
Subject to the right of any holders of Preferred Stock to receive
preferential distributions, the holders of the shares of Common Stock will be
entitled to receive distributions in the form of dividends if and when declared
by the Board of Directors of Home Properties out of funds legally available
therefor, and, upon liquidation of Home Properties, each outstanding share of
Common Stock will be entitled to participate pro rata in the assets remaining
after payment of, or adequate provision for, all known debts and liabilities of
Home Properties, including debts and liabilities arising out of its status as
general partner of the Operating Partnership, and any liquidation preference of
issued and outstanding Preferred Stock. Home Properties intends to continue
paying quarterly distributions.
The holder of each outstanding share of Common Stock will be entitled to
one vote on all matters presented to stockholders for a vote, subject to the
provisions of Home Properties' Articles of Incorporation regarding Excess Stock
described below. As described below, the Board of Directors of Home Properties
may, in the future, grant holders of one or more series of Preferred Stock the
right to vote with respect to certain matters when it fixes the attributes of
such series of Preferred Stock. Pursuant to the MGCL, Home Properties cannot
dissolve, amend its charter, merge with another entity, sell all or
substantially all its assets, engage in a share exchange or engage in similar
transactions unless such action is approved by stockholders holding a majority
of the outstanding shares entitled to vote on such matter. In addition, the
Amended and Restated Partnership Agreement of the Operating Partnership (the
"Partnership Agreement") requires that any merger or sale of all or
substantially all of the assets of Operating Partnership be approved by
partners holding a majority of the outstanding Units, excluding Operating
Partnership Units held by Home Properties. Home Properties' Articles of
Incorporation provide that its Bylaws may be amended by its Board of Directors.
The holder of each outstanding share of Common Stock will be entitled to
one vote in the election of directors who serve for terms of one year. Holders
of the shares of Common Stock will have no right to cumulative voting for the
election of directors. Consequently, at each annual meeting of stockholders,
the holders of a majority of the shares entitled to vote in the election of
directors will be able to elect all of the directors. Directors may be removed
only for cause and only with the affirmative vote of the holders of a majority
of the shares entitled to vote in the election of directors.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more series,
as authorized by the Board of Directors of Home Properties. The Board of
Directors will fix the attributes of any Preferred Stock that it authorizes for
issuance. Because the Board of Directors has the power to establish the
preferences and rights of each series of Preferred Stock, it may afford the
holders of any series of Preferred Stock preferences, powers and rights,
voting or otherwise, senior to the rights of holders of shares of Common Stock.
The issuance of Preferred Stock could have the effect of delaying or preventing
a change in control of Home Properties.
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of Home Properties, then, before any distribution or payment
shall be made to the holders of any shares of Common Stock, any Excess Shares
or any other class or series of capital stock of Home Properties ranking junior
to any outstanding Preferred Stock in the distribution of assets upon any
liquidation, dissolution or winding up of Home Properties, the holders of
shares of each series of Preferred Stock shall be entitled to receive out of
assets of Home Properties legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per
share, plus an amount equal to all dividends accrued and unpaid thereon (which
shall not include any accumulation
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in respect of unpaid dividends for prior dividend periods if such shares of
Preferred Stock do not have cumulative dividend). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of shares of Preferred Stock will have no right or claim to any of the
remaining assets of Home Properties. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up, the available
assets of Home Properties are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
capital stock of Home Properties ranking on a parity with such shares of
Preferred Stock in the distribution of assets, then the holders of such shares
of Preferred Stock and all other such classes or series of capital stock shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
RESTRICTIONS ON TRANSFER
Ownership Limits. Home Properties' Articles of Incorporation contain
certain restrictions on the number of shares of capital stock that stockholders
may own. For Home Properties to qualify as a REIT under the Code, no more than
50% in value of its outstanding shares of capital stock may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year or during a
proportionate part of a shorter taxable year. The capital stock must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. Because Home
Properties expects to continue to qualify as a REIT, its Articles of
Incorporation contain restrictions on the ownership and transfer of shares of
its capital stock intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Articles of Incorporation,
no holder may own, or be deemed to own by virtue of the attribution provisions
of the Code, more than 8.0% (the "Ownership Limit") of the value of the issued
and outstanding shares of capital stock of Home Properties. Stockholders
("Existing Holders") whose holdings exceeded the Ownership Limit immediately
after Home Properties' initial public offering of its Common Stock, assuming
that all Units of the Operating Partnership are counted as shares of Common
Stock, are permitted to continue to hold the number of shares they held on
such date and may acquire additional shares of capital stock upon (i) the
exchange of Units for Shares, (ii) the exercise of stock options or receipt of
grants of shares of capital stock pursuant to a stock benefit plan, (iii) the
acquisition of shares of capital stock pursuant to a dividend reinvestment
plan, (iv) the transfer of shares of capital stock from another Existing Holder
or the estate of an Existing Holder by devise, gift or otherwise, or (v) the
foreclosure on a pledge of shares of capital stock; provided, no such
acquisition may cause any Existing Holder to own, directly or by attribution,
more than 17.5% (the "Existing Holder Limit") of the issued and outstanding
Shares, subject to certain additional restrictions. The Board of Directors of
Home Properties may increase or decrease the Ownership Limit and Existing
Holder Limit from time to time, but may not do so to the extent that after
giving effect to such increase or decrease (i) five beneficial owners of Shares
could beneficially own in the aggregate more than 49.5% of the aggregate value
of the outstanding capital stock of Home Properties or (ii) any beneficial
owner of capital stock would violate the Ownership Limit or Existing Holder
Limit as a result of a decrease. The Board of Directors may waive the
Ownership Limit or the Existing Holder Limit with respect to a holder if such
holder provides evidence acceptable to the Board of Directors that such
holder's ownership will not jeopardize Home Properties' status as a REIT.
Any transfer of outstanding capital stock of Home Properties
("Outstanding Stock") that would (i) cause any holder, directly or by
attribution, to own capital stock having a value in excess of the Ownership
Limit or Existing Holder Limit, (ii) result in shares of capital stock other
than Excess Stock, if any, to be owned by fewer than 100 persons, (iii) result
in Home Properties being closely held within the meaning of section 856(h) of
the Code, or (iv) otherwise prevent Home Properties from satisfying any
criteria necessary for it to qualify as a REIT, is null and void, and the
purported transferee acquires no rights to such Outstanding Stock.
Outstanding Stock owned by or attributable to a stockholder or shares of
Outstanding Stock purportedly transferred to a stockholder which cause such
stockholder or any other stockholder to own shares of capital stock in excess
of the Ownership Limit or Existing Holder Limit will automatically convert into
shares of Excess Stock. Such Excess Stock will be transferred by operation of
law to a separate trust, with Home Properties acting as trustee, for the
exclusive benefit of the person or persons to whom such Outstanding Stock may
be ultimately transferred without violating the Ownership Limit or Existing
Holder Limit. Excess Stock is not treasury stock,
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but rather constitutes a separate class of issued and outstanding stock of Home
Properties. While the Excess Stock is held in trust, it will not be entitled
to vote, will not be considered for purposes of any stockholder vote or the
determination of a quorum for such vote and will not be entitled to participate
in dividends or other distributions. Any record owner or purported transferee
of Outstanding Stock which has converted into Excess Stock (the "Excess
Holder") who receives a dividend or distribution prior to the discovery by Home
Properties that such Outstanding Stock has been converted into Excess Stock
must repay such dividend or distribution upon demand. While Excess Stock is
held in trust, Home Properties will have the right to purchase it from the
trust for the lesser of (i) the price paid for the Outstanding Stock which
converted into Excess Stock by the Excess Holder (or the market value of the
Outstanding Stock on the date of conversion if no consideration was given for
the Outstanding Stock) or (ii) the market price of shares of capital stock
equivalent to the Outstanding Stock which converted into Excess Stock (as
determined in the manner set forth in the Articles of Incorporation) on the
date Home Properties exercises its option to purchase. Home Properties must
exercise this right within the 90-day period beginning on the date on which it
receives written notice of the transfer or other event resulting in the
conversion of Outstanding Stock into Excess Stock. Upon the liquidation of
Home Properties, distributions will be made with respect to such Excess Stock
as if it consisted of the Outstanding Stock from which it was converted.
Any Excess Holder, with respect to each trust created upon the conversion
of Outstanding Stock into Excess Stock, may designate any individual as a
beneficiary of such trust; provided, such person would be permitted to own the
Outstanding Stock which converted into the Excess Stock held by the trust under
the Ownership Limit or Existing Holder Limit and the consideration paid to such
Excess Holder in exchange for designating such person as the beneficiary is not
in excess of the price paid for the Outstanding Stock which converted into
Excess Stock by the Excess Holder (or the market value of the Outstanding Stock
on the date of conversion if no consideration was given for the Outstanding
Stock). Home Properties' redemption right must have expired or been waived
prior to such designation. Immediately upon the designation of a permitted
beneficiary, the Excess Stock, if any, will automatically convert into shares
of the Outstanding Stock from which it was converted and Home Properties as
trustee of the trust will transfer such shares, if any, and any proceeds from
redemption or liquidation to the beneficiary.
If the restrictions on ownership and transfer, conversion provisions or
trust arrangements in Home Properties' Articles of Incorporation are determined
to be void or invalid by virtue of any legal decision, statute, rule or
regulation, then the Excess Holder of any Outstanding Stock that would have
converted into shares of Excess Stock if the conversion provisions of the
Articles of Incorporation were enforceable and valid shall be deemed to have
acted as an agent on behalf of Home Properties in acquiring such Outstanding
Stock and to hold such Outstanding Stock on behalf of Home Properties unless
Home Properties waives its right to this remedy.
The foregoing ownership and transfer limitations may have the effect of
precluding acquisition of control of Home Properties without the consent of its
Board of Directors. All certificates representing shares of capital stock will
bear a legend referring to the restrictions described above. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines, and the stockholders concur, that it is no longer in the
best interests of Home Properties to attempt to qualify, or to continue to
qualify, as a REIT. Approval of the limited partners of the Operating
Partnership to terminate REIT status is also required.
Ownership Reports. Every owner of more than 5% of the issued and
outstanding shares of capital stock of Home Properties must file a written
notice with Home Properties containing the information specified in the
Articles of Incorporation no later than January 31 of each year. In addition,
each stockholder shall, upon demand, be required to disclose to Home Properties
in writing such information as Home Properties may request in order to
determine the effect of such stockholder's direct, indirect and attributed
ownership of shares of capital stock on Home Properties' status as a REIT or to
comply with any requirements of any taxing authority or other governmental
agency.
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CERTAIN OTHER PROVISIONS OF MARYLAND LAW AND CHARTER DOCUMENTS
THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN PROVISIONS OF MGCL AND HOME
PROPERTIES' ARTICLES OF INCORPORATION AND BYLAWS. THIS SUMMARY DOES NOT
PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE ARTICLES OF INCORPORATION AND BYLAWS, COPIES OF WHICH ARE
FILED AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS
CONSTITUTES A PART. SEE "ADDITIONAL INFORMATION."
Limitation of Liability and Indemnification. The Articles of
Incorporation and Bylaws limit the liability of directors and officers to Home
Properties and its stockholders to the fullest extent permitted from time to
time by the MGCL and require Home Properties to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by the MGCL.
Business Combinations. Under the MGCL, certain "business combinations"
(including a merger, consolidation, share exchange or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland corporation and any person who beneficially owns
10% or more of the voting power of the outstanding voting stock of the
corporation or an affiliate or associate of the corporation who, at any time
within the two-year period immediately prior to the date in question, was the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the then-outstanding voting stock of the corporation (an "Interested
Stockholder") or an affiliate thereof, are prohibited for five years after the
most recent date on which the Interested Stockholder became an Interested
Stockholder. Thereafter, in addition to any other required vote, any such
business combination must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (i) 80% of the
votes entitled to be cast by holders of outstanding shares of voting stock of
the corporation, voting together as a single voting group, and (ii) two-thirds
of the votes entitled to be cast by holders of voting stock of the corporation
(other than voting stock held by the Interested Stockholder who will, or whose
affiliate will, be a party to the business combination or by an affiliate or
associate of the Interested Stockholder) voting together as a single voting
group. The extraordinary voting provisions do not apply if, among other
things, the corporation's stockholders receive a price for their shares
determined in accordance with the MGCL and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Articles of Incorporation of Home Properties
contain a provision exempting from these provisions of the MGCL any business
combination involving the Leenhoutses (or their affiliates) or any other person
acting in concert or as a group with any of the foregoing persons.
Control Share Acquisitions. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by the affirmative vote of two-thirds of
the votes entitled to be cast on the matter other than "interested shares"
(shares of stock in respect of which any of the following persons is entitled
to exercise or direct the exercise of the voting power of shares of stock of
the corporation in the election of directors: an "acquiring person," an
officer of the corporation or an employee of the corporation who is also a
director). "Control shares" are shares of stock which, if aggregated with all
other such shares of stock owned by the acquiring person, or in respect of
which such person is entitled to exercise or direct the exercise of voting
power of shares of stock of the corporation in electing directors within one of
the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
of more of all voting power. Control shares do not include shares the
acquiring person is entitled to vote as a result of having previously obtained
stockholder approval. The control share acquisition statute does not apply to
shares acquired in a merger, consolidation or share exchange if the corporation
is a party to the transaction, or to acquisitions approved or exempted by the
charter or bylaws of the corporation.
A person who has made or proposes to make a control share acquisition,
under certain conditions (including an undertaking to pay expenses), may compel
the board of directors to call a special meeting of stockholders to be held
within 50 days of demand to consider the voting rights of the control shares
upon delivery of an acquiring person statement containing certain information
required by the MGCL, including a representation that the acquiring person has
the financial capacity to make the proposed control share acquisition, and a
written undertaking to pay the corporation's expenses of the special meeting
(other than the expenses of those opposing approval of the voting
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rights). If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the MGCL,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value, determined without regard to the
absence of voting rights for control shares, as of the date of the last control
share acquisition or, if a stockholder meeting is held, as of the date of the
meeting of stockholders at which the voting rights of such shares are
considered and not approved. If voting rights for control shares are approved
at a stockholders' meeting before the control share acquisition and the
acquiring person becomes entitled to exercise or direct the exercise of a
majority or more of all voting power, all other stockholders may exercise
rights of objecting shareholders under Maryland law to receive the fair value
of their Shares. The fair value of the Shares for such purposes may not be
less than the highest price per share paid by the acquiring person in the
control share acquisition. Certain limitations and restrictions otherwise
applicable to the exercise of objecting shareholders' rights do not apply in
the context of a control share acquisition.
The Articles of Incorporation contain a provision exempting from the
control share acquisition statute any and all acquisitions to the extent that
such acquisitions would not violate the Ownership Limit or Existing Owner
Limit. There can be no assurance that such provision will not be amended or
eliminated at any point in the future.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTORY NOTES
The following discussion summarizes certain federal income tax
considerations that may be relevant to a prospective holder of shares of Common
Stock. Nixon, Hargrave, Devans & Doyle LLP has acted as tax counsel to Home
Properties in connection with its formation and its election to be taxed as a
REIT, has reviewed the following discussion and is of the opinion that it
fairly summarizes the federal income tax considerations that are likely to be
material to a holder of Shares. The following discussion is not exhaustive of
all possible tax considerations and does not give a detailed discussion of any
state, local or foreign tax considerations. This discussion does not address
all of the aspects of federal income taxation that may be relevant to
stockholders in light of their particular circumstances or to certain types of
stockholders subject to special treatment under the federal income tax laws
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States).
This discussion contains a general summary of certain Code sections that
govern the federal income tax treatment of a REIT and its stockholders. These
sections of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the Treasury
Regulations promulgated thereunder and administrative and judicial
interpretations thereof. Home Properties has not sought or obtained any ruling
from the Internal Revenue Service or any opinions of counsel specifically
related to the tax matters described below.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SHARES OF COMMON STOCK AND THE ELECTION BY HOME
PROPERTIES TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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TAXATION OF HOME PROPERTIES AS A REIT
Home Properties has elected to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ending December 31,
1994. Home Properties believes that, it is organized and operates in such a
manner as to qualify for taxation as a REIT under the Code, and Home Properties
intends to continue to operate in such a manner. No assurance, however, can be
given that Home Properties has operated or will operate in a manner so as to
qualify or remain qualified as a REIT.
In the opinion of Nixon, Hargrave, Devans & Doyle LLP, commencing with
Home Properties' taxable year ending December 31, 1994, Home Properties was
organized in conformity with the requirements for qualification as a REIT, and
its method of operation has enabled it to meet the requirements for
qualification and taxation as a REIT under the Code. This opinion is based on
certain assumptions and is conditioned upon certain representations made by
Home Properties as to certain factual matters relating to Home Properties'
organization, manner of operation, income and assets. Nixon, Hargrave, Devans
& Doyle LLP is not aware of any facts or circumstances that are inconsistent
with these assumptions and representations. Home Properties' qualification and
taxation as a REIT will depend upon Home Properties' satisfaction of the
requirements necessary to be classified as a REIT, discussed below, on a
continuing basis. Nixon, Hargrave, Devans & Doyle LLP will not review
compliance with these tests on a continuing basis. Therefore, no assurance can
be given that Home Properties will satisfy such tests on a continuing basis.
See "- Requirements for Qualification - FAILURE TO QUALIFY" below.
If Home Properties qualifies for taxation as a REIT, it generally will
not be subject to federal corporate income taxes on net income that it
currently distributes to its stockholders. This treatment substantially
eliminates the "double taxation" (at the corporate and stockholder levels) that
generally results from investment in a regular corporation. However, Home
Properties will be subject to federal income tax in the following
circumstances. First, Home Properties will be taxed at regular corporate rates
on any undistributed REIT taxable income, including undistributed net capital
gains. Second, under certain circumstances, Home Properties may be subject to
the "alternative minimum tax" on its items of tax preference. Third, if Home
Properties has (i) net income from the sale or other disposition of
"foreclosure property" (which is, in general, property acquired by Home
Properties by foreclosure or otherwise on default on a loan secured by the
property) which is held primarily for sale to customers in the ordinary course
of business or (ii) other nonqualifying income from foreclosure property, it
will be subject to tax at the highest corporate rate on such income. Fourth,
if Home Properties has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if Home
Properties should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed in "Requirements for Qualification - INCOME TESTS"
below), and has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on
the net income attributable to the greater of the amount by which Home
Properties fails the 75% or 95% test, multiplied by a fraction intended to
reflect Home Properties' profitability. Sixth, if Home Properties should fail
to distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior years, Home
Properties would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if Home
Properties disposes of any asset acquired from a C corporation (I.E., a
corporation generally subject to full corporate level tax) in a transaction in
which the basis of the asset in Home Properties' hands is determined by
reference to the basis of the asset (or any other property) in the hands of the
C corporation, and Home Properties recognizes gain on the disposition of such
asset during the 10-year period beginning on the date on which such asset was
acquired by the Company, then, to the extent of such property's "built-in" gain
(the excess of the fair market value of such property at the time of
acquisition by Home Properties over the adjusted basis in such property at such
time), such gain will be subject to tax at the highest regular corporate rate
applicable.
REQUIREMENTS FOR QUALIFICATION.
GENERALLY. To qualify as a REIT, an entity must be a corporation, trust
or association: (1) which is managed by one or more trustees or directors; (2)
the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation
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but for Sections 856 through 859 of the Code; (4) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons; (6)
during the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities); and (7) which
meets certain other tests, described below, regarding the nature of its income
and assets. The Code provides that conditions (1) to (4), inclusive, must be
met during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. Electing REIT treatment requires
that the entity adopt a calendar year accounting period.
Home Properties satisfies the requirements set forth above. In addition,
Home Properties' Articles of Incorporation provide restrictions regarding the
transfer of its shares that are intended to assist Home Properties in
continuing to satisfy the share ownership requirements described in (5) and (6)
above. See "Description of Capital Stock - Restrictions on Transfer."
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the assets of the partnership and is deemed to be entitled to the income of the
partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and asset tests. Thus, Home Properties' proportionate
share of the assets, liabilities and items of income of the Operating
Partnership and the partnerships, if any, in which the Operating Partnership
will have an interest will be treated as assets, liabilities and items of Home
Properties for purposes of applying the requirements described herein.
INCOME TESTS. In order to maintain qualification as a REIT, there are
three gross income requirements that must be satisfied annually. First, at
least 75% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the REIT's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property investments, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received by Home Properties will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described
above only if several conditions are met. First, the amount of rent must not
be based in whole or in part on the income or profits of any person. However,
an amount received or accrued generally will not be excluded from the term
"rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts of sales. Second, the Code provides that
rents received from a resident will not qualify as "rents from real property"
in satisfying the gross income tests if the Company, or an owner of 10% or more
of the Company, directly or constructively owns 10% or more of such tenant (a
"Related Party Tenant"). Third, if rent attributable to personal property,
leased in connection with a lease of real property, is greater than 15% of the
total rent received under the lease, then the portion of rent attributable to
such personal property will not qualify as "rents from real property."
Finally, for rents received to qualify as "rents from real property," Home
Properties generally must not operate or manage the property or furnish or
render services to tenants, other than through an "independent contractor" who
is adequately compensated and from whom Home Properties derives no revenue.
The "independent contractor" requirement, however, does not apply to the extent
the services provided by Home Properties are "usually or customarily rendered"
in connection with the rental of space for occupancy only (such as furnishing
water, heat, light and air conditioning, and cleaning windows, public entrances
and lobbies) and are not otherwise considered "rendered to the occupant."
It is expected that Home Properties' real estate investments will
continue to give rise to income that will enable it to satisfy all of the
income tests described above. Substantially all of Home Properties' income
will be
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derived from its interest in the Operating Partnership, which will, for the
most part, qualify as "rents from real property" for purposes of the 75% and
the 95% gross income tests.
The Operating Partnership does not and does not anticipate charging more
than a de minimis amount of rent that is based in whole or in part on the
income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above). The Operating
Partnership does not anticipate receiving rents in excess of a de minimis
amount from Related Party Tenants. The Operating Partnership does not
anticipate holding a lease on any property in which rents attributable to
personal property constitute greater than 15% of the total rents received under
the lease. Neither Home Properties nor the Operating Partnership will
knowingly directly perform services considered to be rendered to the occupant
of property. The Operating Partnership will perform all development,
construction and leasing services for, and will operate and manage, the
properties owned by it directly without using an "independent contractor."
Management believes that the only material services to be provided to lessees
of these properties will be those usually or customarily rendered in connection
with the rental of space for occupancy only. Home Properties does not
anticipate that the Operating Partnership will provide services that might be
considered rendered primarily for the convenience of the occupants of the
property.
The Operating Partnership owns all of the non-voting common stock of the
Management Companies, corporations that are taxable as regular corporations.
The Management Companies will perform management, development, construction and
leasing services for certain properties not owned by the Company. The income
earned by and taxed to the Management Companies would be nonqualifying income
if earned by Home Properties through the Operating Partnership. As a result of
the corporate structure, the income will be earned by and taxed to the
Management Companies and will be received by the Operating Partnership only
indirectly as dividends that qualify under the 95% test.
If Home Properties fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if Home Properties' failure
to meet such tests was due to reasonable cause and not due to willful neglect,
Home Properties attaches a schedule of the sources of its income to its return,
and any income information on the schedules was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
Home Properties would be entitled to the benefit of these relief provisions.
As discussed above in "GENERALLY," even if these relief provisions apply, a tax
would be imposed with respect to the excess net income. No similar mitigation
provision applies to provide relief if the 30% income test is failed, and in
such case, Home Properties would cease to qualify as a REIT. See "FAILURE TO
QUALIFY" below.
ASSET TESTS. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of Home Properties' total assets must be
represented by real estate assets, cash and cash items (including receivables)
and government securities. For this purpose real estate assets include (i)
Home Properties' allocable share of real estate assets held by the Operating
Partnership and partnerships in which the Operating Partnership owns an
interest or held by "qualified REIT subsidiaries" of Home Properties and (ii)
stock or debt instruments held for not more than one year purchased with the
proceeds of a stock offering or long-term (at least five-year) debt offering of
the Company. Second, not more than 25% of Home Properties' total assets may be
represented by securities other than those in the 75% asset class. Third, of
the investments included in the 25% asset class, the value of any one issuer's
securities owned by Home Properties may not exceed 5% of the value of Home
Properties' total assets, and Home Properties may not own more than 10% of any
one issuer's outstanding voting securities (excluding securities of a qualified
REIT subsidiary or another REIT).
Home Properties anticipates that it will continue to be able to comply
with these asset tests. Home Properties is deemed to hold directly its
proportionate share of all real estate and other assets of the Operating
Partnership and should be considered to hold its proportionate share of all
assets deemed owned by the Operating Partnership through its ownership of
partnership interests in other partnerships. As a result, Home Properties
plans to hold more than 75% of its assets as real estate assets. In addition,
Home Properties does not plan to hold any securities representing more than 10%
of any one issuer's voting securities, other than any qualified REIT
subsidiary, nor securities of any one issuer exceeding 5% of the value of Home
Properties' gross assets (determined
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in accordance with generally accepted accounting principles). As previously
discussed, Home Properties is deemed to own its proportionate share of the
assets of a partnership in which it is a partner so that the partnership
interest, itself, is not a security for purposes of this asset test.
The Operating Partnership owns all of the nonvoting common stock of the
Management Companies. The Operating Partnership does not own any of the voting
securities of the Management Companies. Management believes that Home
Properties' interest in the securities of the Management Companies through the
Operating Partnership does not exceed 5% of the total value of Home
Properties' assets. No independent appraisals have been obtained. Counsel,
in rendering its opinion as to the qualification of Home Properties as a REIT,
is relying on the conclusions of management regarding the value of such
securities of the Management Companies.
After initially meeting the asset tests at the close of any quarter, Home
Properties will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. Home Properties intends to maintain adequate records of the
value of its assets to ensure compliance with the asset tests, and to take such
other action within 30 days after the close of any quarter as may be required
to cure any noncompliance. However, there can be no assurance that such other
action will always be successful.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its stockholders in an amount at least equal to (a) the sum of (i) 95% of
Home Properties' "REIT taxable income" (computed without regard to the
dividends paid deduction and the REIT's net capital gain) and (ii) 95% of the
net income (after tax), if any, from foreclosure property, minus (b) the sum of
certain items of noncash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before Home Properties timely files its tax return for such year and
if paid on or before the first regular dividend payment after such declaration.
To the extent that Home Properties does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income," as adjusted, it will be subject to tax on the undistributed amount at
regular capital gains and ordinary corporate tax rates. Furthermore, if Home
Properties should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year; (ii) 95% of its REIT
capital gain income for such year, and (iii) any undistributed taxable income
from prior periods, Home Properties would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Home Properties intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard,
the Partnership Agreement of the Operating Partnership authorizes the Company,
as general partner, to take such steps as may be necessary to cause the
Operating Partnership to distribute to its partners an amount sufficient to
permit Home Properties to meet these distribution requirements. It is
possible, however, that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between the actual receipt of income and actual payment of
deductible expenses and the inclusion of such income and deduction of such
expenses in arriving at taxable income of the Company, or if the amount of
nondeductible expenses such as principal amortization or capital expenditures
exceed the amount of noncash deductions. In the event that such timing
differences occur, in order to meet the 95% distribution requirement, Home
Properties may cause the Operating Partnership to arrange for short-term, or
possibly long-term, borrowing to permit the payment of required dividends. If
the amount of nondeductible expenses exceeds noncash deductions, the Operating
Partnership may refinance its indebtedness to reduce principal payments and
borrow funds for capital expenditures.
Under certain circumstances, Home Properties may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year that may be included in Home
Properties' deduction for dividends paid for the earlier year. Thus, Home
Properties may be able to avoid being taxed on amounts distributed as
deficiency dividends; however, Home Properties will be required to pay interest
to the IRS based upon the amount of any deduction taken for deficiency
dividends.
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FAILURE TO QUALIFY. If Home Properties fails to qualify for taxation as
a REIT in any taxable year and the relief provisions do not apply, Home
Properties will be subject to tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. Distributions to
stockholders in any year in which Home Properties fails to qualify will not be
deductible by the Company, nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits,
distributions to stockholders will be taxable as ordinary income to the extent
of current and accumulated earnings and profits, and, subject to certain
limitations in the Code, corporate distributees may be eligible to claim the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, Home Properties also will be disqualified from taxation
as a REIT for the four taxable years following the year during which
qualification was lost. If is not possible to state whether in all
circumstances Home Properties would be entitled to such statutory relief.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as Home Properties
qualifies as a REIT, distributions made to Home Properties' taxable domestic
stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed Home
Properties' actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's shares,
but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a stockholder's shares, they
will be included in income as long-term capital gain (or short-term capital
gain if the shares have been held for one year or less), assuming the shares
are a capital asset in the hands of the stockholder. In addition, any dividend
declared by Home Properties in October, November or December of any year
payable to a stockholder of record on a specific date in any such month shall
be treated as both paid by Home Properties and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by Home
Properties during January of the following calendar year. Stockholders may
not include in their individual income tax returns any net operating losses or
capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a stockholder
who has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from Home Properties required to be treated by such stockholder
as long-term capital gain.
Distributions from Home Properties and gain from the disposition of
shares will not ordinarily be treated as passive activity income, and
therefore, stockholders generally will not be able to apply any "passive
losses" against such income. Dividends from Home Properties (to the extent
they do not constitute a return of capital) and gain from the disposition of
shares generally will be treated as investment income for purposes of the
investment interest limitation.
Home Properties will report to its domestic stockholders and the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with
respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder who does not
provide Home Properties with its correct taxpayer identification number may
also be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability.
In addition, Home Properties may be required to withhold a portion of capital
gain distributions made to any stockholders who fail to certify their non-
foreign status to the Company. See "TAXATION OF FOREIGN STOCKHOLDERS" below.
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TAXATION OF TAX-EXEMPT STOCKHOLDERS. The IRS has ruled that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not
constitute "unrelated business taxable income" ("UBTI"). Although rulings are
merely interpretations of law by the IRS and may be revoked or modified, based
upon this ruling and the analysis therein, distributions by Home Properties to
a stockholder that is a tax-exempt entity should also not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of shares
of Common Stock with "acquisition indebtedness" within the meaning of the Code
and the shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity.
Congress has enacted legislation which includes a provision that requires
qualified trusts that hold more than 10% (by value) of the interests in a REIT
to treat a percentage of REIT dividends as UBTI. The requirement applies only
if (i) the qualification of the REIT depends upon the application of a "look-
through" exception to the restriction on REIT stockholdings by five or fewer
individuals, including qualified trusts (see "Description of Capital Stock -
Restrictions on Transfer"), and (ii) the REIT is "predominantly held" by
qualified trusts. The qualification of Home Properties as a REIT currently
does not depend upon application of the "look-through" exception and Home
Properties currently is not "predominantly held" by qualified trusts.
INCOME TAXATION OF THE OPERATING PARTNERSHIP,
THE UNDERLYING PARTNERSHIPS AND THEIR PARTNERS
The following discussion summarizes certain federal income tax
considerations applicable to Home Properties' investment in the Operating
Partnership.
CLASSIFICATION OF THE OPERATING PARTNERSHIP. Home Properties will be
entitled to include in its income its distributive share of the income and to
deduct its distributive share of the losses of the Operating Partnership
(including the Operating Partnership's share of the income or losses of any
partnerships in which it owns an interest) only if the Operating Partnership is
classified for federal income tax purposes as a partnership rather than an
association taxable as a corporation. On December 17, 1996, the IRS issued
final Treasury Regulations regarding the classification of business entities
(known as the "check-the-box" rules) which changed the process for electing
business tax status.
The new Treasury Regulations, which were effective January 1, 1997,
replaced the former rules for classifying business organizations with a simpler
elective classification system that generally allows eligible entities to
choose to be taxed as partnerships or corporations. Under the Treasury
Regulations, a limited partnership which qualifies as an eligible entity will
generally be allowed to choose to be taxed as a partnership or a corporation.
The default classification for an existing entity is the classification that
the entity claimed immediately prior to January 1, 1997. Alternatively, an
eligible entity may affirmatively elect its classification. An entity's default
classification continues until the entity elects to change its classification
by means of an affirmative election. Because the Operating Partnership was
classified as a partnership as of December 31, 1996, the Operating Partnership
will be treated as a partnership for federal income tax purposes for periods
after December 31, 1996 pursuant to the new Treasury Regulations. The
Operating Partnership plans to confirm this tax treatment by electing to be
treated as a partnership under the Treasury Regulations.
The Treasury Regulations state that the IRS will not challenge the prior
classification of an existing eligible entity for periods before January 1,
1997 if: (1) the entity had a reasonable basis for its claimed classification;
(2) the entity and all of its partners recognized the tax consequences of any
change in the entity's classification within 60 months before January 1, 1997;
and (3) neither the entity nor any member had been notified in writing on or
before May 8, 1996, that the classification was under examination by the IRS.
Requirements (2) and (3) described in this paragraph are either not relevant
to, or have been satisfied by, the Operating Partnership. Accordingly, the
Operating Partnership's claimed classification as a partnership for periods
prior to January 1, 1997 should be respected if the Operating Partnership had
a reasonable basis for such classification.
In determining whether a reasonable basis for partnership classification
existed for periods prior to January 1, 1997, it is necessary to review the
former classification rules, under which an organization formed as a
partnership will be treated as a partnership for federal income tax purposes
rather than as a corporation only if it
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has no more than two of the four corporate characteristics that the Treasury
Regulations use to distinguish a partnership from a corporation for tax
purposes. These four characteristics are continuity of life, centralization of
management, limited liability, and free transferability of interests.
The Operating Partnership has not requested, nor does it intend to
request, a ruling from the IRS that it will be treated as a partnership for
federal income tax purposes. In the opinion of Nixon, Hargrave, Devans & Doyle
LLP, which is based on the provisions of the partnership agreement of the
Operating Partnership and on certain factual assumptions and representations of
the Company, the Operating Partnership has a reasonable basis for its claim
to be classified as a partnership for federal income tax purposes and
therefore should be taxed as a partnership rather than an association taxable
as a corporation for periods prior to January 1, 1997 . Nixon, Hargrave,
Devans & Doyle LLP's opinion is not binding on the IRS or the courts.
If for any reason the Operating Partnership was taxable as a corporation
rather than as a partnership for federal income tax purposes, Home Properties
would not be able to satisfy the income and asset requirements for REIT status.
See "- Requirements for Qualification - INCOME TESTS" and "- Requirements for
Qualification - ASSET TESTS." In addition, any change in the Operating
Partnership's status for tax purposes might be treated as a taxable event, in
which case Home Properties might incur a tax liability without any related cash
distribution. See "- Requirements for Qualification - ANNUAL DISTRIBUTION
REQUIREMENTS." Further, items of income and deduction of the Operating
Partnership would not pass through to its partners, and its partners would be
treated as stockholders for tax purposes. The Operating Partnership would be
required to pay income tax at corporate tax rates on its net income, and
distributions to its partners would constitute dividends that would not be
deductible in computing the Operating Partnership's taxable income.
PARTNERS, NOT PARTNERSHIPS, SUBJECT TO TAX. A partnership is not a
taxable entity for federal income tax purposes. Rather, a partner is required
to take into account its allocable share of a partnership's income, gains,
losses, deductions and credits for any taxable year of the partnership ending
within or with the taxable year of the partner, without regard to whether the
partner has received or will receive any distributions from the partnership.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
may be disregarded for tax purposes under section 704(b) of the Code if they do
not have substantial economic effect. If an allocation is not recognized for
federal income tax purposes, the item subject to the allocation will be
reallocated in accordance with the partners' interests in the partnership,
which will be determined by taking into account all of the facts and
circumstances relating to the economic arrangement of the partners with
respect to such item. The Operating Partnership's allocations of taxable
income and loss are intended to comply with the requirements of section 704(b)
of the Code and the Treasury Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. When property is
contributed to a partnership in exchange for an interest in the partnership,
the partnership generally takes a carryover basis in that property for tax
purposes equal to the adjusted basis of the contributing partners in the
property, rather than a basis equal to the fair market value of the property at
the time of contribution. Pursuant to section 704(c) of the Code, income,
gain, loss and deduction attributable to such contributed property must be
allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such
unrealized gain or unrealized loss is generally equal to the difference between
the fair market value of the contributed property at the time of contribution
and the adjusted tax basis of such property at the time of contribution (a
"Book-Tax Difference"). Such allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other economic or legal
arrangements among the partners.
The partners of the Operating Partnership other than Home Properties (the
"Contributing Partners") are deemed to have contributed general or limited
partnership interests in other partnerships owning multifamily residential
properties which were acquired by Operating Partnership and which may have had
an adjusted tax basis which is less than the fair market value of such
interests (the "Contributed Interests"). Upon the merger or dissolution of the
such partnerships and the transfer of the properties to the Operating
Partnership, the Contributing
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Partners were deemed to have contributed the portion of the properties
represented by the Contributed Interests (the "Contributed Property") to the
Operating Partnership, and the Operating Partnership's tax basis in the
Contributed Property will be the tax basis of the Contributing Partners in the
Contributed Interests. Because the Contributed Property has a Book-Tax
Difference, the Operating Partnership Agreement will require allocations to be
made in a manner consistent with section 704(c) of the Code.
Under these special rules, the Contributing Partners may be allocated
lower amounts of depreciation deductions for tax purposes with respect to the
Contributed Property than the amount of such deductions that would be allocated
to them if such Contributed Property had a tax basis equal to its fair market
value at the time of contribution. In addition, in the event of the
disposition of any of the Contributed Property, all income attributable to the
Book-Tax Difference of such Contributed Property generally will be allocated to
the Contributing Partners, and Home Properties generally will be allocated only
its share of capital gains attributable to appreciation, if any, occurring
after the contribution of the Contributed Property. These allocations will
tend to eliminate the Book-Tax Differences with respect to the Contributed
Property over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) may not entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the Contributed Property in the
hands of the Operating Partnership could cause Home Properties (i) to be
allocated lower amounts of depreciation and other deductions for tax purposes
than would be allocated to Home Properties if the Contributed Property had a
tax basis equal to its fair market value at the time of contribution, and
(ii) possibly to be allocated taxable gain in the event of a sale of
Contributed Property in excess of the economic or book income allocated to Home
Properties as a result of such sale. These allocations possibly could cause
Home Properties to recognize taxable income in excess of cash proceeds, which
might adversely affect its ability to comply with the REIT distribution
requirements. See " - Requirements for Qualification - ANNUAL DISTRIBUTION
REQUIREMENTS."
DEPRECIATION. The Operating Partnership's assets other than cash will
consist largely of property treated as purchased by the Operating Partnership.
The Operating Partnership has an aggregate basis in the assets of each
partnership it acquires equal to the sum of the purchase price paid for the
partnership interests. To the extent that the Operating Partnership's basis in
a piece of depreciable property exceeds the basis of the property when it was
held by the acquired partnership, such basis should in effect be treated as a
newly acquired, separate asset and entitled to 39-year depreciation.
Section 704(c) of the Code requires that depreciation as well as gain and
loss be allocated in a manner so as to take into account the variation between
the fair market value and tax basis of the property contributed. Similarly,
amortization on intangible contracts for services contributed to the Operating
Partnership will be allocated as required by section 704(c) of the Code.
Depreciation with respect to any property purchased by the Operating
Partnership subsequent to the admission of its partners will be allocated among
the partners in accordance with their respective percentage interests in the
Operating Partnership.
SALE OF PARTNERSHIP PROPERTY. Generally, any gain realized by a
partnership on the sale of property held by the partnership for more than one
year will be long-term capital gain, except for any portion of such gain that
is treated as depreciation or cost recovery recapture. However, under the REIT
Requirements, Home Properties' share as a partner of any gain realized by the
Operating Partnership on the sale of any property held as inventory or other
property held primarily for sale to customers in the ordinary course of a trade
or business will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "- Taxation of Home Properties as a REIT."
Such prohibited transaction income will also have an adverse effect upon Home
Properties' ability to satisfy the income tests for REIT status. See "-
Requirements for Qualification - INCOME TESTS." Under existing law, whether
property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction. A
safe harbor to avoid classification as a prohibited transaction exists as to
real estate assets held for the production of rental income by a REIT for at
least four years where in any taxable year the REIT has made no more than seven
sales of property or, in the alternative, the aggregate of the adjusted bases
of all properties sold does not exceed 10% of the adjusted bases of all of the
REIT's properties during the year and the expenditures includible in a
property's basis made during the four-year period prior to disposition must not
exceed 30% of the property's net sales price. The Operating Partnership
intends to hold its properties for investment with a view to
- 22 -
<PAGE>
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating and leasing the properties and to make such occasional
sales of the properties, including adjoining land, as are consistent with Home
Properties' and the Operating Partnership's investment objectives. No
assurance can be given, however, that every property sale by the Operating
Partnership will constitute a sale of property held for investment.
OTHER TAX CONSIDERATIONS
THE MANAGEMENT COMPANIES. A portion of the amounts to be used to fund
distributions to stockholders is expected to come from the Management Companies
through dividends on stock of the Management Companies to be held by the
Operating Partnership. The Management Companies do not qualify as a REITs and
will pay federal, state and local tax income taxes on its net income at normal
corporate tax rates. Home Properties expects that the Management Companies'
income, after deducting its expenses, will not give rise to significant
corporate tax liabilities. The amount of corporate tax liability will increase
if the IRS disallows the items of expense which Home Properties expects to be
allocated to the Management Companies.
STATE AND LOCAL TAX CONSIDERATIONS. Home Properties and the Management
Companies will, and Home Properties' stockholders may, be subject to state or
local taxation in various states or local jurisdictions, including those in
which the Company, its stockholders or the Operating Partnership transact
business or reside. The state and local tax treatment of Home Properties and
its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their
own tax advisors regarding the effect of state and local tax laws on their
investment in the Company.
POSSIBLE FEDERAL TAX DEVELOPMENTS. The rules dealing with federal income
taxation are constantly under review by the IRS, the Treasury Department and
Congress. New federal tax legislation or other provisions may be enacted into
law or new interpretations, rulings or Treasury Regulations could be adopted,
all of which could affect the taxation of Home Properties or of its
stockholders. No prediction can be made as to the likelihood of passage of any
new tax legislation or other provisions either directly or indirectly affecting
Home Properties or its stockholders. Consequently, the tax treatment described
herein may be modified prospectively or retroactively by legislative, judicial
or administrative action.
SELLING SHAREHOLDERS
The partners of the Operating Partnership may from time to time tender
their Units of limited partnership interest to the Operating Partnership. The
Company may give notice to such partners that the Company will acquire such
Units in exchange for shares of Common Stock (the "LP Purchase Right"). All of
the shares being offered hereby are being sold by the partners in the Operating
Partnership who may acquire shares of Common Stock in exchange for their Units
pursuant to the LP Purchase Right (all of such persons being collectively
referred to as the "Selling Shareholders"). Although none of the Selling
Shareholders has indicated a present intent to tender their Units which would
trigger the Company's right to issue shares of Common Stock to them under the
LP Purchase Right, the Company is required, pursuant to the terms of various
registration rights agreements, to file the registration statement of which
this Prospectus forms a part registering such shares for resale under the
Securities Act. The Company is bearing all costs of this registration. The
Company will not receive any proceeds from the sale of the shares offered
hereby.
The following tables set forth certain information regarding the Selling
Shareholders' ownership of Units and the number of shares of Common Stock which
may be issued pursuant to the LP Purchase Right which are registered for
resale. Because the Selling Shareholders may sell all, some or none of the
shares registered for resale, no estimate can be made concerning the number
shares of Common Stock issued in exchange for Units that will be offered
hereby or the number of shares or Units that each Selling Shareholder will own
upon completion of the offering contemplated by this Prospectus. The
relationships between certain of the Selling Shareholders and Home Properties
are described as of the date of this Prospectus. Such relationships may
change, and information contained in subsequent reports filed with the
Commission by Home Properties relating to such relationships is incorporated
herein by reference and may supersede the information set forth herein. See
"Documents Incorporated by Reference".
- 23 -
<PAGE>
EXECUTIVE OFFICERS, DIRECTORS AND RELATED PERSONS
Number of Shares
Units Owned Registered for Sale
NAME PRIOR TO OFFERING(1) IN OFFERING
Norman P. Leenhouts(2) 467(3) 467
Nelson B. Leenhouts(4) 219(3) 219
Richard J. Crossed(5) 68,021(6) 68,021
Amy L. Tait(7) 11,195 11,195
Amy L. Tait(7) and
Robert C. Tait(8) 2,548 2,548
David P. Gardner(9) 3,506 3,506
Ann M. McCormick(10) 565 565
Ann M. McCormick(10) and
Patrick M. McCormick 1,737 1,737
Burton S. August(11) 4,246 4,246
Arlene Z. Leenhouts(12) 50,000 50,000
Nancy E. Leenhouts(13) 50,000 50,000
Laurie L. Willard(14) 6,033 6,033
Home Leasing Corporation(15) 429,376(3) 429,376
Leenhouts Ventures(15) 8,010(3) 8,010
Conifer Realty, Inc.(16) 285,403(6) 285,403
Conifer Development, Inc.(16) 20,738(6) 20,738
_________________
(1)Amounts do not reflect the number of shares of Common Stock the Selling
Shareholder may presently own.
(2)Mr. Leenhouts has been the Chairman and Co-Chief Executive Officer and a
Director of Home Properties since its inception.
(3)These Units, and any shares of Common Stock which may be exchanged for them,
are subject to the terms of lock-up agreements which expire August 4, 1999
between the owners of the Units and the underwriters of the Company's
initial public offering. The lock-up agreements restrict the owners'
ability to dispose of such Units without the lead underwriter's consent;
although, such Units may now be pledged if the pledgee agrees to be bound by
the lock-up agreements.
(4)Mr. Leenhouts has been the President and Co-Chief Executive Officer and a
Director of Home Properties since its inception.
(5)Mr. Crossed has been an Executive Vice President and a Director of Home
Properties since January 1, 1996.
(6)These Units, and any shares of Common Stock which may be exchanged for them,
are subject to the terms of lock-up agreements which expire December 31,
1996.
(7)Ms. Tait has been an Executive Vice President and a Director of Home
Properties since its inception and is the daughter of Norman
Leenhouts.
(8)Mr. Tait has been a Vice President of Home Properties since its inception
and is the spouse of Amy Tait.
(9)Mr. Gardner has been a Vice President and the Chief Financial Officer and
Treasurer of Home Properties since its inception.
(10) Ms. McCormick has been a Vice President and the General Counsel and
Secretary of Home Properties since its inception.
(11) Mr. August has been a Director of Home Properties since August, 1994.
(12) Ms. Leenhouts is the spouse of Norman Leenhouts.
(13) Ms. Leenhouts is the spouse of Nelson Leenhouts.
(14) Ms. Willard is a Vice President of Home Properties and the daughter of
Norman Leenhouts.
(15) Owned entirely by Norman and Nelson Leenhouts.
(16) Owned entirely by Richard Crossed and Peter Obourn and John Fennessey,
Vice Presidents of Home Properties identified in the table below.
- 24 -
<PAGE>
OTHER SELLING SHAREHOLDERS
Number of Shares
Units Owned Registered for Sale
NAME PRIOR TO OFFERING(1) IN OFFERING
Charles J. August(1) 4,246 4,246
Robert W. August(1) 1,158 1,158
William E. Beach(2) 2,433 2,433
William E. Beach(2) and
Richelle A. Beach 3,046 3,046
J. Neil Boger 1,225 1,225
Joyce P. Caldarone 1,225 1,225
Peter L. Cappuccilli, Sr. 6,250 6,250
Rocco M. Cappuccilli 6,250 6,250
John H. Cline 2,316 2,316
Estate of R. Bruce Davey 1,225 1,225
Ralph DeStephano, Sr. 2,316 2,316
John G. Dorschel 1,225 1,225
Richard J. Dorschel 1,225 1,225
Elizabeth Hatch Dunn 2,450 2,450
Philip W. Dunsker 2,316 2,316
John H. Fennessey(3) 34,300(5) 34,300
Gerald A. Fillmore
F/B/O Living Trust of G.A.F. 2,316 2,316
Timothy A. Florczak(2) 600 600
John K. Gardner
Money Purchase Pension Plan 1,500 1,500
Rufus Hedges 2,450 2,450
The Joseph A. Cicci
Revocable Trust 104,118 104,118
Richard J. Katz, Jr. 2,316 2,316
Jeremy A. Klainer 612 612
Esther Lowenthal 2,316 2,316
J. Robert Maney 2,450 2,450
Anwer Masood, MD 2,316 2,316
John A. McAlpin 1,225 1,225
George E. Mercier 1,225 1,225
Harold S. Mercier 1,225 1,225
Michelle Mercier 1,225 1,225
Paul O'Leary(2) 3,207 3,207
Peter J. Obourn(3) 34,300(5) 34,300
Elizabeth W. Pine 1,448 1,448
Jack E. Post 1,225 1,225
Estate of Ernest I. Reveal, Jr. 2,316 2,316
Gregory J. Riley, MD 2,316 2,316
Thomas P. Riley 2,316 2,316
Robert T. Silkett 1,225 1,225
Carolyn M. Steklof 1,225 1,225
Richard J. Struzzi(2) 2,363 2,363
Tamarack Associates 2,316 2,316
Tamarack II Associates 2,027 2,027
William G. Vonberg 2,316 2,316
Stephen C. Whitney 869 869
Mr. and Mrs. Frank Zamiara 2,316 2,316
- 25 -
<PAGE>
_________________
(1)Amounts do not reflect the number of shares of Common Stock the Selling
Shareholder may presently own.
(2)Charles August and Robert August are, respectively, the brother and son of
Burton August, a director of Home Properties identified in the first table
above.
(3)This individual has been a Vice President of Home Properties since its
inception.
(4)This individual has been a Vice President of Home Properties since January
1, 1996.
(5)These Units, and any shares of Common Stock which may be exchanged for them,
are subject to the terms of lock-up agreements which expire December 31,
1996.
PLAN OF DISTRIBUTION
The shares offered hereby may be offered and sold from time to time as
market conditions permit on the New York Stock Exchange, or otherwise, at
prices and terms then prevailing, at prices related to the then-current market
price, or in negotiated transactions. The shares may be sold by one or more of
the following methods, without limitation: (a) a block trade in which a broker
or dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate a transaction; (b)
purchases by a broker or a dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face-to-face transactions between sellers and purchasers without a broker or
dealer. In effecting sales, brokers or dealers engaged by one or more of the
Selling Shareholders may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts from Selling
Shareholders in amounts to be negotiated. Such brokers and dealers and any
other participating brokers or dealers may be deemed "underwriters" under the
Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Nixon, Hargrave, Devans & Doyle LLP. In addition,
Nixon, Hargrave, Devans & Doyle LLP will provide an opinion with respect to
certain tax matters which form the basis of the discussion under "Federal
Income Tax Considerations".
EXPERTS
The financial statements incorporated by reference in this Prospectus or
elsewhere in the Registration Statement have been incorporated herein in
reliance on the reports audited by Coopers & Lybrand LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
- 26 -
<PAGE>
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE
OFFERING COVERED BY THIS PROSPECTUS.
IF GIVEN OR MADE, SUCH INFORMATION OR 2,630,000
SHARES
REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT HOME PROPERTIES
CONSTITUTE AN OFFER TO SELL, OR A OF
SOLICITATION OF AN OFFER TO BUY, THE NEW YORK, INC.
COMMON STOCK IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR COMMON STOCK
SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY SINCE PROSPECTUS
THE DATE HEREOF.
FEBRUARY 10, 1997
SUMMARY
TABLE OF CONTENTS
PAGE
Additional Information 2
Documents Incorporated
by Reference 2
The Company 3
Risk Factors 3
Use of Proceeds 9
Description of Capital Stock 9
Federal Income Tax
Considerations 14
Selling Shareholders 23
Plan of Distribution 26
Legal Matters 26
Experts 26
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemized listing of expenses to be incurred by
the Company in connection with the issuance and distribution of the shares
of Common Stock being registered hereby, other than discounts and
commissions:
SEC Registration Fee $18,024.69
NYSE Listing Fee 7,400.00*
Legal Fees and Expenses 6,500.00*
Accounting Fees and Expenses 2,000.00*
Miscellaneous 5,000.00*
-----------
Total $38,924.69*
*Estimate
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified under
Maryland law, the Articles of Incorporation of Home Properties and the
Partnership Agreement ("Operating Partnership Agreement") of Home
Properties of New York, L.P., a New York limited partnership of which the
Company is the general partner, against certain liabilities. The Articles
of Incorporation require the Company to indemnify its directors and
officers to the fullest extent permitted from time to time by the laws of
Maryland. The Bylaws contain provisions which implement the
indemnification provisions of the Articles of Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service in those or other capacities unless it is
established that the act or omission of the director or officer was
material to the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate dishonesty, or the
director or officer actually received an improper personal benefit in
money, property or services, or in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or
omission was unlawful. No amendment of the Articles of Incorporation of
Home Properties shall limit or eliminate the right to indemnification
provided with respect to acts or omissions occurring prior to such
amendment or repeal. Maryland law permits Home Properties to provide
indemnification to an officer to the same extent as a director, although
additional indemnification may be provided if such officer is not also a
director.
The MGCL permits the articles of incorporation of a Maryland
corporation to include a provision limiting the liability of its directors
and officers to the corporation and its stockholders
II - 1
<PAGE>
for money damages, subject to specified restrictions. The MGCL does not,
however, permit the liability of directors and officers to the corporation
or its stockholders to be limited to the extent that (1) it is proved that
the person actually received an improper benefit or profit in money,
property or services (to the extent such benefit or profit was received) or
(2) a judgment or other final adjudication adverse to such person is
entered in a proceeding based on a finding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. The
Articles of Incorporation of Home Properties contain a provision consistent
with the MGCL. No amendment of the Articles of Incorporation shall limit
or eliminate the limitation of liability with respect to acts or omissions
occurring prior to such amendment or repeal.
The Operating Partnership Agreement also provides for indemnification
of Home Properties and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in
its Articles of Incorporation, and limits the liability of Home Properties
and its officers and directors to the Operating Partnership and its
partners to the same extent liability of officers and directors of the
Company to Home Properties and its stockholders is limited under Home
Properties' Articles of Incorporation.
Home Properties has entered into indemnification agreements with each
of Home Properties' directors and certain of its officers. The
indemnification agreements require, among other things, that Home
Properties indemnify its directors and those officers to the fullest extent
permitted by law, and advance to the directors and officers all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Home Properties also must indemnify and
advance all expenses incurred by directors and officers seeking to enforce
their rights under the indemnification agreements, and cover directors and
officers under Home Properties' directors' and officers' liability
insurance. Although the form of indemnification agreement offers
substantially the same scope of coverage afforded by provisions in the
Articles of Incorporation and the Bylaws and the Operating Partnership
Agreement of the Operating Partnership, it provides greater assurance to
directors and officers that indemnification will be available, because, as
a contract, it cannot be modified unilaterally in the future by the Board
of Directors or by the stockholders to eliminate the rights it provides.
Home Properties has purchased insurance under a policy that insures
both Home Properties and its officers and directors against exposure and
liability normally insured against under such policies, including exposure
on the indemnities described above.
ITEM 16. EXHIBITS
NUMBER DESCRIPTION
3.1 Articles of Amendment and Restatement of Articles of Incorporation
of Home Properties of New York, Inc. (the "Company")
3.2 Amended and Restated By-Laws of the Company
4.1 Form of certificate representing shares of Common Stock of the
Company
II - 2
<PAGE>
4.2 Agreement of the Company to file instruments defining the rights of
holders of long term debt or it or its subsidiaries with the
Commission on request
4.3 Credit Agreement between Manufacturers and Traders Trust Company,
Home Properties of New York, L.P. (the "Operating Partnership") and
the Company
4.4 Amendment Agreement between M&T, the Operating Partnership and the
Company
4.5 Mortgage Spreader, Consolidation and Modification Agreement between
M&T and the Operating Partnership, together with form of Mortgage,
Assignment of Leases and Rents and Security Agreement incorporated
therein by reference
4.6 Mortgage Note made by the Operating Partnership payable to M&T in
the principal amount of $12,298,999
4.7 Demand Grid Note, dated August 22, 1996, from the Operating
Partnership to M&T in the maximum principal amount of $25,000,000
4.8 Spreader, Consolidation, Modification and Extension Agreement, dated
as of October 26, 1995, between John Hancock Mutual Life Insurance
Company and the Operating Partnership relating to indebtedness in
the principal amount of $20,500,000.
4.9 Form of Indenture for Debt Securities
5.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP regarding the
legality of the Common Stock being registered
8.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP regarding certain tax
matters*
10.1 Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
10.2 Amendments No. One through Eight to the Agreement of Limited
Partnership of the Operating Partnership
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP (included as part of
Exhibits 5.1 and 8.1)
23.2 Consent of Coopers & Lybrand LLP*
23.3 Consent of Coopers & Lybrand LLP*
25 Power of Attorney (included on signature page)
* Included with this filing.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II - 3
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
II - 4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Rochester, New York, on the 10th
day of February, 1997.
HOME PROPERTIES OF NEW YORK, INC.
By: /S/ Amy L. Tait
-------------------------------
Amy L. Tait
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- -------------------- ----------------------------- ----------------
*
- -------------------- Director, Chairman February 10, 1997
Norman P. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
* Director, President February 10, 1997
- ----------------------- and Co-Chief Executive
Nelson B. Leenhouts Officer
(Principal Executive Officer)
* Director, Executive Vice February 10, 1997
- ------------------------ President
Richard J. Crossed
/S/ Amy L. Tait Director, Executive Vice February 10, 1997
- ------------------------ President and
Amy L. Tait Chief Operating Officer
/S/ David P. Gardner Vice President, Chief Financial February 10, 1997
- ------------------------- Officer and Treasurer
David P. Gardner (Principal Financial and
Accounting Officer)
II-5
*
- --------------------- Director February 10, 1997
Burton S. August, Sr.
*
- --------------------- Director February 10, 1997
William Balderston, III
*
- ---------------------- Director February 10, 1997
Leonard F. Helbig, III
*
- ---------------------- Director February 10, 1997
Roger W. Kober
*
- ---------------------- Director February 10, 1997
Clifford W. Smith, Jr.
*
- ---------------------- Director February 10, 1997
Paul L. Smith
* By /S/ Amy L. Tait
-----------------------
Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
Home Properties of New York, Inc. (the "Company")
Registration Statement on Form S-3 No. 333-2672
NUMBER DESCRIPTION LOCATION
- ------ ------------ --------
3.1 Articles of Amendment and Restatement Form S-11, File
of Articles of Incorporation of No. 33-78862
the Company ("S-11")
3.2 Amended and Restated By-Laws of the Company S-11
4.1 Form of certificate representing shares of S-11
Common Stock of the Company
4.2 Agreement of the Company to file instruments S-11
defining the rights of holders of long term
debt or it or its subsidiaries with the
Commission on request
4.3 Credit Agreement between Manufacturers and Traders Form 10-Q for
Trust Company, Home Properties of New York, L.P. Quarter Ended
(the "Operating Partnership") and the Company 6/30/96 (File
1-13136)
("6/96 10-Q")
4.4 Amendment Agreement between M&T, the Operating Form 10-K for
Partnership and the Company Year Ended
12/31/94
("1994 10-K")
4.5 Mortgage Spreader, Consolidation and Modification 6/96 10-Q
Agreement between M&T and the Operating Partnership,
together with form of Mortgage, Assignment of Leases
and Rents and Security Agreement incorporated
therein by reference
4.6 Mortgage Note made by the Operating Partnership 6/96 10-Q
payable to M&T in the principal amount of
$12,298,999
4.7 Demand Grid Note, dated August 22, 1996, from the Amendment
Operating Partnership to M&T in the maximum No. 1 to Form
principal amount of $25,000,000 S-3,
File No.
333-2674
("S-3")
II-7
4.8 Spreader, Consolidation, Modification and Extension Form 10-K for
Agreement, dated as of October 26, 1995, between Year Ended
John Hancock Mutual Life Insurance Company and the 12/31/95
Operating Partnership relating to indebtedness in the ("1995 10-K")
principal amount of $20,500,000.
4.9 Form of Indenture for Debt Securities S-3
5.1 Opinion of Nixon,Hargrave, Devans & Doyle LLP Amendment
regarding the legality of the Common Stock No. 1 to Form
being registered S-3, File No.
333-2672
8.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP Filed
regarding certain tax matters herewith
10.1 Amended and Restated Agreement of Limited S-11
Partnership of the Operating Partnership
10.2 Amendments No. One through Eight to the Agreement 1995 10-K
of Limited Partnership of the Operating Partnership
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP Included with
Exhibits 5.1
and 8.1
23.2 Consent of Coopers & Lybrand LLP Filed
herewith
23.3 Consent of Coopers & Lybrand LLP Filed
herewith
24 Power of Attorney Included on
signature
page
II-8
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counsellors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716)263-1600
February 10, 1997
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Gentlemen:
We have acted as counsel to Home Properties of New York, Inc.
("Home Properties") in connection with the Registration Statement on
Form S-3 (No. 333-2672) filed with the Securities and Exchange Commission
on March 26, 1996, as amended (the "Registration Statement"). This opinion
relates to the Company's qualification for federal income tax purposes as a
real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code"), for taxable years beginning with the taxable
year ending December 31, 1994 and to the accuracy of the "FEDERAL INCOME
TAX CONSIDERATIONS" section of the Registration Statement. All capitalized
terms used but not defined herein shall have the meaning assigned to them
in the Registration Statement.
For the purpose of rendering our opinion, we have examined and
are relying upon the truth and accuracy, at all relevant times, of the
statements, covenants, representations and warranties contained in the
following documents:
1. The Articles of Amendment and Restatement of the Articles of
Incorporation of Home Properties and the Articles of Incorporation of the
Management Companies.
2. The By-Laws of Home Properties and the By-Laws of the
Management Companies.
3. The Certificate of Limited Partnership and the Amended and
Restated Agreement of Limited Partnership of Home Properties of New York,
L.P., as amended (the "Operating Partnership").
4. The Registration Statement.
5. Representations made to us by officers of Home Properties,
the Operating Partnership and the Management Companies in certificates (the
"Certificates") delivered to us in connection with the Registration
Statement or this opinion and which we have no reason to believe contain
any material inaccuracies.
In connection with rendering this opinion, we have assumed and
are relying upon, without any independent investigation or review thereof,
the following: (i) the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted
to us as copies, and authenticity of the originals of such documents; (ii)
that neither Home Properties, the Operating Partnership nor the Management
Companies will make any amendments to its organizational documents after
the date of this opinion that would adversely affect Home Properties'
qualification as a REIT for any taxable year (iii) that no actions will be
taken by Home Properties, the Operating Partnership or the Management
Companies after the date hereof that would have the effect of altering the
facts upon which the opinions set forth below are based; and (iv) that all
documents, certificates, representations, warranties and covenants on which
we have relied in rendering the opinions set forth below and that were
given or dated earlier than the date of this opinion continue to remain
accurate, insofar as relevant to the opinions set forth herein, from such
earlier date through and including the date of this letter.
Based on our examination of the foregoing items, subject to the
assumptions, exceptions, limitations and qualifications set forth herein,
we are of the opinion that:
1. Commencing with Home Properties' taxable year ending
December 31, 1994, Home Properties was organized in conformity with the
requirements for qualification as a REIT under the Internal Revenue of
1986, as amended (the "Code"), its method of operation has enabled it to
meet the requirements for qualification and taxation as a REIT under the
Code, and the proposed method of operation described in the Prospectus
included in the Registration Statement will enable Home Properties to
satisfy the requirements for such qualification under the Code for
subsequent taxable years.
2. Home Properties is properly treated as a partner for federal
income tax purposes in the Operating Partnership, and the Operating
Partnership is properly classified as a partnership for federal income tax
purposes and not as an association taxable as a corporation provided it
does not make an election to the contrary.
3. The discussion in the Prospectus included in the
Registration Statement under the caption "FEDERAL INCOME TAX
CONSIDERATIONS" fairly summarizes the federal income tax considerations
that are likely to be material to holders of common stock who are United
States citizens or residents or domestic corporations and who are not
subject to special treatment under the tax laws.
Our opinions expressed herein are based upon our interpretation
of the current provisions of the Code and existing judicial decisions,
administrative regulations and published rulings and procedures. Our
opinions are not binding upon the Internal Revenue Service or courts and
there is no assurance that the Internal Revenue Service will not
successfully challenge the conclusions set forth herein. The Internal
Revenue Service has not yet issued regulations or administrative
interpretations with respect to various provisions of the Code relating to
REIT qualification. Consequently, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. We undertake no obligation to advise you of
changes in law which may occur after the date hereof.
Our opinions are limited to the federal income tax matters and
the federal law of the United States of America addressed herein, and no
other opinions are rendered with respect to any other matter not
specifically set forth in the foregoing opinion and we assume no
responsibility as to the applicability thereto, or the effect thereon, of
the laws of any other jurisdiction.
Home Properties' qualification and taxation as a real estate
investment trust depend upon Home Properties' ability to satisfy, through
actual operating results, the applicable asset composition, source of
income, shareholder diversification, distribution, record keeping and other
requirements of the Code necessary to qualify and be taxed as a REIT. The
foregoing opinions are based upon the proposed method of operation as
described in the Registration Statement and facts stated in the
Certificates and other documents described herein. We undertake no
obligation to review at any time in the future whether Home Properties has
fulfilled the requirements listed in this paragraph and, consequently, no
assurance can be given that the actual results of Home Properties'
operations for any taxable year will satisfy the requirements of the Code
necessary to qualify or be taxed as a REIT.
In the event any one of the statements, representations,
warranties or assumptions we have relied upon to issue this opinion is
incorrect in a material respect, our opinions might be adversely affected
and may not be relied upon.
We hereby consent to the reference to us under the captions
"FEDERAL INCOME TAX CONSIDERATIONS" and "LEGAL MATTERS" in the Registration
Statement, and to the filing of this opinion as an Exhibit to the
Registration Statement, without implying or admitting that we are experts
within the meaning of the Securities Act of 1933, as amended, with respect
to any part of the Registration Statement.
This letter is furnished to Home Properties, the Operating
Partnership and the Management Companies and is solely for your benefit.
This letter may not be relied upon by any other person or for any other
purpose and may not be referred to or quoted from without our prior written
consent.
Very truly yours,
/s/Nixon, Hargrave, Devans & Doyle LLP
Exhibit 23.2
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement
of Home Properties of New York, Inc. on Amendment No. 3 to Form S-3 (No.
333-2672) of our report dated February 1, 1996, on our audits of the
consolidated financial statements of Home Properties of New York, Inc. as
of December 31, 1995 and 1994, for the year ended December 31, 1995 and the
period from August 4, 1994 through December 31, 1994, and the combined
financial statements of the Original Properties for the period from January
1, 1994 through August 3, 1994, and the year ended December 31, 1993, which
report is included in the Annual Report on Form 10-K/A Amendment No. 2. We
also consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand LLP
Rochester, New York
February 10, 1997
Exhibit 23.3
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement
of Home Properties of New York, Inc. on Amendment No. 3 to Form S-3 (No.
333-2672) of our reports dated January 22, 1997 and January 24, 1997, on our
audits of the Hudson Valley Properties and Valley Park South Apartments,
respectively, for the year ended December 31, 1995, which reports are included
in Form 8-K/A Amendment No. 1, dated February 4, 1997. We also consent to
the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand LLP
Rochester, New York
February 10, 1997
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counsellors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716)263-1600
February 10, 1997
United States Securities and
Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attn: Mark S. Britton
Mail Stop 7-6
Re: Home Properties of New York, Inc.
Amendment No. 2 to Form S-3, filed November 20, 1996,
File No. 333-2672
Amendment No. 2 to Form S-3, filed November 20, 1996,
File No. 333-2674
Form 10-K/A for the fiscal year ended December 31, 1995
Form 8-K/A filed November 13, 1995
Form 8-K/A filed March 15, 1996
Form 10-Q for the quarter ended March 31, 1996
Form 10-Q for the quarter ended June 30, 1996
Form 10-Q for the quarter ended September 30, 1996
File No. 1-13136
Ladies and Gentlemen:
On behalf of Home Properties of New York, Inc. (the "Company"),
we are filing, marked to show changes, Amendment No. 3 to the Company's
Registration Statement on Form S-3, File No. 333-2672 (the "Resale
Registration"), and Amendment No. 3 to the Company's Registration Statement
on Form S-3, File No. 333-2674 (the "Capital Registration"). Previously
submitted for filing were Form 8-K dated January 5, 1996 and filed December
6, 1996, which form was amended by Form 8-K/A filed February 4, 1997, and
Amendment No. 1 to the Company's Form 10-Q for the quarter ending September
30, 1996.
The following information responds to the comments of the staff
of the Securities and Exchange Commission in their letter of December 5,
1996 (the "Comment Letter"). The numbering of the responses corresponds to
the numbering of the comments in the Comment Letter.
OUTSIDE FRONT COVER PAGE OF PROSPECTUS
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<PAGE>
1. During subsequent telephone conversations, the staff
indicated that this comment should not have been included and does not
require a response.
DOCUMENTS INCORPORATED BY REFERENCE, PAGE 2 (333-2672),
PAGE 3 (333-2674)
2. The requested references have been added.
3. The date September 14, 1995 has been corrected to read May
16, 1995.
4. The requested references have been added.
5. The requested reference has been added along with references
to Forms 8-K and 8-K/A filed after November 14, 1996.
PLAN OF DISTRIBUTION, PAGE 40 (333-2674)
6. The transactions contemplated where sales may be made at
negotiated prices are those where certain factors involved in the
transaction, such as a significant investment by a limited number of
investors or reduced transaction costs because of the manner in which the
transaction arose, justify the Company selling securities at a price that
varies from the trading price of the Company's stock. Also, in the event
that the Company sells securities other than its Common Stock, it will have
to negotiate the price of the securities sold.
FINANCIAL STATEMENTS
7. The requested financial statements were filed with Form 8-
K/A dated January 5, 1996 and filed February 4, 1997.
8. The requested consents have been provided.
9. The consents of the independent public accountants are
currently dated.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
FINANCIAL STATEMENTS
NOTE 3. DEFERRED CHARGES AND OTHER ASSETS
10. The requested disclosure has been added to footnote 3 to the
financial statements.
SUPPLEMENTAL RESPONSE RE OP UNITS - NO CORRESPONDING COMMENT
During a telephone conversation subsequent to the Comment Letter,
the staff requested supplemental information regarding the put rights
relating to the limited partnership units of the Operating Partnership ("OP
Units"). While there were some investors who received OP Units in
connection acquisitions which were not subject to a lock-up agreement or
other restriction on their "put" right (only Conifer Development, Inc.,
Conifer Realty, Inc. and members of Conifer's management were subject to
one-year lock-up agreements), none of such limited partners, or any
partners of the Operating Partnership,
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<PAGE>
have put any of their OP Units to the Operating Partnership. At this
point, all OP Units have been outstanding for more than one year. We have
advised the Company regarding the staff's position that if the OP Units may
be put to the Operating Partnership before one year has elapsed from the
date of issuance that such OP Units may be treated as common stock of the
Company for registration purposes.
Please call me at (716) 263-1687 with any questions you may have
in connection with this response letter or the documents submitted. In my
absence, you may speak with my colleague, Deborah Quinn, whose direct dial
number is (716) 263-1307.
Very truly yours,
/s/Roger W. Byrd
cc: Ann M. McCormick, Esq.
Deborah McLean Quinn, Esq.
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